REBATES

Rebates, widely known as refunds, are a popular tool used by businesses to
promote their products and services. Rebates are distinct from coupons and
other forms of discounting in that they reimburse a customer for part of
the purchase price following, rather than at the time of, the sale. By
offering consumers cash back on the purchase price, rebates provide an
incentive to buy a particular product.

A relatively new method of promotion, rebating evolved from the marketing
technique of offering coupons. They were initially offered by producers of
grocery-store goods and subsequently by manufacturers of nonfood items.
Currently, businesses making use of rebates are diverse and include the
manufacturers of health and beauty aids, household supplies, and
small and large appliances, as well as automakers, wine and liquor
manufacturers, and segments of the computer industry.

The cash amounts these companies offer their customers is similarly
wide-ranging; some rebates of less than a dollar are offered, while other
rebates on "big ticket" items such as automobiles have
reached several thousand dollars. The size of the rebate offered depends
on the base retail price, the nature of the product being promoted, and
the number of goods backed up in the production pipeline.

HOW REBATES WORK

The first step in rebating, as outlined by Susan J. Samtur in
Cashing in at the Checkout,
is for the manufacturer to issue an offer of a rebate to all who purchase
its product; typically the offer carries an expiration date of six to
eight months. The purchaser then completes a form provided by the
manufacturer and mails it—along with any other items the
manufacturer may require, such as a cash-register receipt or the Universal
Product Code (UPC) snipped from the packaging—to the address
specified on the form.

Most commonly, the purchaser sends the rebate form and related
"proof of purchase" items not to the manufacturer but to one
of several large clearing-houses hired by the manufacturer to handle these
transactions—for instance, the Young America Corporation in
Minnesota or the Nielson Clearing House in Texas. The clearinghouse then
processes the form and sends the purchaser a check in the
manufacturer's name, usually within four to eight weeks from the
time the purchaser mails in the required information.

Companies use a number of means to get their rebate forms into the hands
of customers. Many companies supply a pad of tear-off rebate forms to the
stores selling their products; others print the form directly on the
packaging or on a tag hanging from the merchandise. To announce the rebate
offer and distribute the forms, companies may also place advertisements in
newspapers and magazines, utilize home mailers, and/or place ads in the
myriad refunders' newsletters developed by consumers to avail
themselves of these offers. In addition, companies frequently use
television and radio advertisements to publicize their rebate promotions.
Finally, there are several Internet sites that direct consumers to rebate
offers.

ADVANTAGES AND DISADVANTAGES OF REBATES

Rebates are highly attractive to most consumers, for they provide a
partial cash reimbursement for their purchases that is tax-free (the
Internal Revenue Service views rebates as a reduction in the price paid
for a product, rather than as income). And for manufacturers, rebating
provides numerous advantages: it induces prospective customers to try
their products; it boosts company sales and visibility; it relieves
problems of excess inventory; and it attracts interest from retailers, who
often help promote the offer and expand the shelf space allotted to the
manufacturer's goods accordingly. Rebate promotions can thus help a
company increase its leverage with retailers and develop brand loyalty and
repeat business among consumers over the long run. Indeed, a study
conducted by United Marketing Services (UMS) found that rebates are an
effective means of establishing product awareness with consumers. In
addition, the information consumers provide on rebate forms can be used to
target future promotions.

As rebates have increased in popularity, however, several common problems
have emerged. For example, many companies have experienced problems
honoring their rebate offers, largely due to an inability to keep up with
demand. In fact, some companies offer rebates with the knowledge that only
a small percentage of consumers bother to take advantage of them.
"Most … companies are hoping that although rebates will
entice consumers to buy their products, most people will never actually
get around to dealing with all the rigmarole required to redeem
them," Roberta Furger wrote in
PC World.
These companies fail to anticipate the interest in a particular offer and
thus plan their rebate processing poorly, resulting in long delays in
sending checks to consumers.

Due to the frequent mix-ups and delays in processing rebate submissions,
some consumers now tend to view rebate offers as a sleazy marketing
tactic. This means that fewer consumers will base their purchase decisions
on the availability of a rebate. Experts note that consumers can increase
their chances of receiving rebates due by sending all the documentation
requested in the rebate offer; keeping copies of all forms and receipts;
checking on the status of overdue rebates with the company; and reporting
any problems to the Federal Trade Commission, the Better Business Bureaus,
or the state attorneys general. Finally, experts advise consumers to never
buy anything just for the rebate.